Tuesday, October 30, 2012

This week's VREB Monday numbers thanks to Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

October 2012 month to date (previous weeks in brackets)

Net Unconditional Sales: 329 {242} [166] (106)

New Listings: 932 {714} [483] (276)

Active Listings: 4640 {4622} [4616] (4565)

Sales to new listings ratio: 35% {34%} [34%] (38%)

October 2011

Net Unconditional Sales: 483

New Listings: 1086

Active Listings: 4687

Sales to new listings ratio: 44%

Sales to active listings ratio: 10.3% or 9.7 MOI

The VREB will be tough pressed to produce 400 sales for the month of October... but I have faith they can work magic with numbers and pull it off!

Speaking of magicians, apparently CIBC says there's no chance of anything other than a soft landing for Canadian real estate. At least they're not still telling us prices are headed up next year. I always get a kick out of predictions from CIBC, what they being the experts who leveraged their investors earnings up the wazoo in subprime lending in the US and all--oh yeah, their chief "economist" also famously stated we were headed for $200 oil back then too!--great comic relief from the mundane market those thinkers at CIBC....

Saturday, October 20, 2012

But first, kudos to new poster lolatengo for pointing out that the sales/new listings ratio was incorrectly stated in the last update. The sales/new list in the second week dropped from 38% to 34%. This is actually highly unusual, since sales/new listings generally starts off low and increases throughout the month (since the beginning of the month brings a flood of relists). Have we ever had a decrease from the first to second week of a month?

Back to market bottoms. After almost buying a house a few weeks back (had an accepted offer), we've changed our minds and decided to move and rent a house for another year or so. This is for several reasons:

The houses in our price range still weren't quite what we would want to live in for the long term (15+ years).

Hard to swallow dropping half a million on a place and still needing to spend tens of thousands on repairs with the associated disruption/stress.

Market is increasingly weak, so the chances of it being advantageous to wait are high. According to Roger's rent vs buy calculator, if it stays flat, we break approximately even and can afford a better place in a year. If it declines we save whatever the decline was.

Of course one thing to consider is how long the correction will last. A common argument is that timing the market is impossible, and if you wait too long you'll miss the chance and have to buy when the market is recovering and competition is fierce.

So what about past corrections?

90s - 5.5 years from peak to trough, during which time conditions were favourable for buyers with lots of selection. It took 7.5 years for nominal prices to regain their previous peak.

80s - The decline was cliff-like and lasted 4 years. Again it took 7 years for nominal prices to regain their peak (11 until real prices caught up!).

70s - 4 year peak to trough until the bubble of the 80s started.

Our peak was in early 2010, so I think we can safely assume that our correction has at least 2 more years, and likely more after that. I'm not worried about missing the boat anytime soon. (By the way, for those who like to look at prices as flat since mid 2007, and thus would define our correction as already 5 years old, by that measure the 90s correction was over 8 years long).

As for timing the exact bottom, it certainly doesn't seem like there the MOI will give us any sort of predictable head's up. When the market decides to recover, MOI falls off a cliff and prices start rising.

Victoria MOI and SFH Median for 90s market bottom (click to enlarge)

King County (Seattle) MOI and SFH Median for their market bottom

It is likely much more useful to look at affordability measures to gauge approximately how much longer a correction will continue for.

Extra graph: Sales to new listings ratio from 1990 to 2012. Note that in the last 2 years we've seen the lowest sustained sales/new listings ratio in 20 years. Crazy extrapolation: More people than ever are listing but not able to sell. We're building up pent up selling demand.

Monday, October 15, 2012

Continuing the investigation of months of inventory, let's look at the situation before the boom.
We all know that the correction of the second half of the 90s was the kind that the government is trying to orchestrate right now: a soft landing where prices declined a little, but then just stayed flat until incomes caught up.

Generally the debate on this blog is between market bulls and bears, but I believe Dasmo coined the term halibut for those that think we are in for another flat market like the 90s. So let's look at the situation at that time and see how it compares to today.

The average MOI from 1996 (the earliest available active listing data) to the end of 2000 was 7.3 and prices were appropriately fishy. If we look at the last two years, we see an average MOI of 8.1 or about 10% higher than in the 90s. Sure enough in that time we've seen some gentle declines. The current inventory is certainly quite extraordinary. If we continue to see YoY increases in MOI we will start to see the market slide faster.

In other news here are the latest VREB Monday numbers thanks to Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

Sunday, October 14, 2012

One of the best measures of current demand out there is the months of inventory (MOI). This expresses the number of months it would take to sell all active listings at the current monthly sales rate. So in September we had 419 sales with 5025 active listings, giving a MOI of 5025/419 = 12 months.

It’s widely agreed that when inventory levels fall between 5 & 7 months, that the market will be considered balanced. Housing prices should be stable, perhaps rising slightly, influenced more by inflation than by demand. When inventory levels exceed 7 months, then the demand for housing is low, and prices are likely to fall. The high number of homes for sale will create a buyer’s market, allowing buyer’s to dictate price and terms to the majority of sellers if a seller wants to make a deal. When inventory levels fall below 5 months, sellers have more control over price and terms, often resulting in a more significant rise in housing prices, aka a seller’s market.

So let's take a look at the last 7 years in Victoria history. Note that months of inventory is for all residential properties in greater Victoria, including single family homes, condominiums, townhouses, and manufactured homes. Previously I only had monthly data back to mid 2008, but Marko Juras has kindly provided monthly price, new listings, and sales data going back to 1990. Huge thanks for that!

Victoria Residential MOI and SFH Price (click to enlarge)

Another way to look at the same data is by time. Clearly during the boom times we were in a sellers market with months of inventory going as low as 2 and prices increasing by double digits. HouseHuntVictoria was founded just as Victoria's market first briefly strayed into balanced territory (Feb 2007, not marked as green) however the boom wasn't done yet, and went on for another year. Fall of 2008 brought the financial crisis and MOI went through the roof causing prices to drop steeply. However the government crashed interest rates and let loose the lending taps to bring the market back to sellers and prices to recover. Since 2010 we've been in a buyers market with a gentle decline in prices.

What will happen next? It's anyone's guess but notice the steep rise in MOI in the past few months. We are now at the highest level since the financial crisis. Of course the fall will bring some declines here, so another way to look at it is by factoring out seasonal variations and examining the 12 month rolling average of both price and MOI.

Next up: What does a market bottom look like? Can it be predicted by the MOI?

Wednesday, October 10, 2012

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

October 2012 month to yesterday

Net Unconditional Sales: 106

New Listings: 276

Active Listings: 4565

Sales to new listings ratio: 38%

October 2011

Net Unconditional Sales: 483

New Listings: 1086

Active Listings: 4687

Sales to new listings ratio: 44%

Sales to active listings ratio: 10.3% or 9.7 MOI

Sales to new listings generally starts low and increases throughout the month, as most of the expired listings are posted again in the first week. October is generally the month that inventory starts to seriously drop for the winter, so it will be interesting to see how the MOI looks at the end of the month.

It seems the VREB took my hint of blaming the weather for the slow sales. Well I saw a light drizzle come down today and there's more rain in the forecast, so I expect a big jump in sales going forward. All those sun-burned would-be buyers are about to come out of the woodwork.

Thursday, October 4, 2012

"Interest rates are also holding, but should they increase by as little as 1%, that would negate a 10% drop in purchase price. People shouldn't wait for prices to drop, because we never know when interest rates will be increased to stimulate the economy." VREB

I don't hold the outgoing Victoria Real Estate Board president accountable for the gaff in this month's market update press release even though it appeared in her voice. I know how these things work and while it's likely she approved the use of the quote it's highly unlikely she was its author. Never-the-less, it was a priceless gem that should live on in infamy so I've added it to the header of this site so we can have a little laugh every time we find ourselves visiting.

Monday, October 1, 2012

What a beautiful September we had. So beautiful that I'm surprised the VREB didn't use it as an excuse for the miserable sales.

We had a whole 419 sales compared to last year's 458, and 5025 active listings compared to last year's 4940. Nothing earth shattering but just more progression in the market getting weaker and weaker every month. Expect a drop in MOI as places drop off the market quickly in October. The last two years have seen September mark a high point in MOI.